There are many ways that have been structured into the Affordable Health Care Act (Obamacare) to fund the legislation. One of those methods is the investment income tax (unearned income). Wealthy individuals will pay a 3.8 percent surcharge on capital gains and dividends.
The tax went into effect in 2013 for many, but some may have avoided the initial financial pain due to the economic climate and losses.
Who Is Subject to the Tax?
The tax represents a 3.8 percent increase on the already existing tax and affects individuals with an adjusted gross income of $200,000 or more and $250,000 for couples filing jointly.
The tax increase affects a comprehensive range of stocks, bonds, commodities, trusts, annuities and specialized derivatives.
The increase also affects royalties, rentals, self-employment income, and home sales for people who have owned the property for more than five years.
Accounting firms have been hard at work searching for ways their clients can avoid a major jump in their taxes.
Many taxpayers haven’t seen an appreciable difference yet due to an array of economic factors and personal considerations, but will through a combination of the investment tax and mandatory insurance requirements.
The Internal Revenue Service can begin withholding funds through the Individual Mandate Tax on those who have failed to purchase healthcare insurance.
A charge of $95, or 1 percent, whichever is greater, will be levied on anyone without healthcare insurance and the tax increases depending upon how many uninsured individuals are in the household.
The tax increases through 2016 to top out at 2.5 percent or $695. The IRS can withhold the amount from any refund taxpayers might have coming, but can’t garnish wages or present taxpayers with a bill for the amount.
The Changes That Will Affect Taxes
Understanding the tax or seeking the assistance of an account is particularly important for those who fall near, but below the $200,000-$250,000 and suddenly come into a substantial amount of money.
Selling a second home, an increase in come or a bonus could quickly land individuals in the position of paying additional taxes.
Those who qualify for a federal subsidy to purchase insurance and experience an increase in income would have to pay back the subsidy.
The good news is that virtually everyone can now deduct up to 10 percent of their medical expenses People can still utilize a flexible spending account (FSA) to save on medical costs, Social Security, Medicare and income taxes, though they’re limited to a $2,500 personal contribution.
The investment income tax increases the rate from 15 percent to 18.8 percent on unearned income and is expected to affect only the wealthiest 2 percent of Americans. Money raised through the tax will be placed in federal coffers to help fund Obamacare.